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Plaintiff’s Willful and Bad Faith Spoliation of Evidence and “Hide the Ball” Tactics Warranted Default Judgment on Counterclaims

Posted in CASE SUMMARIES

Krumwiede v. Brighton Assocs., L.L.C., 2006 WL 1308629 (N.D. Ill. May 8, 2006)

In this case, plaintiff sued his former employer for breach of his employee agreement, reimbursement of back pay, intentional infliction of emotional distress, and reformation of the employee agreement. On August 25, 2005, the former employer (“Brighton”) filed a counterclaim alleging that plaintiff went to work for a competitor, STI, and misappropriated a business opportunity with a prospective Brighton client (LifeScan Scotland, Ltd.). The counterclaim alleged: (1) breach of the non-compete provision of the employee agreement, (2) breach of the confidentiality provision, (3) tortious interference with prospective economic advantage, (4) violation of the Illinois Trade Secrets Act, and (5) breach of duty.

At the same time the counterclaim was served, Brighton’s attorney also delivered to Krumwiede’s counsel a letter demanding that Krumwiede return the laptop computer that Brighton had furnished to Krumwiede for his use while employed by Brighton (“Brighton’s laptop”). Brighton sought to recover the laptop in order to determine whether Brighton’s data was used improperly after Krumwiede went to work for STI.

When Krumwiede refused to return the laptop, Brighton moved to compel its surrender. On September 15, 2005, the court granted the motion and ordered Krumwiede to turn over Brighton’s laptop by the close of business. When Krumwiede failed to do so, Brighton filed an emergency petition to show cause. At the hearing on the emergency petition, the parties agreed that Brighton’s laptop computer would be placed in the custody of a neutral expert, Forensicon, Inc., who would perform a forensic analysis of the laptop hard drive. Ultimately, Brighton’s laptop computer was sent to Forensicon on September 16, 2005. Based on Forensicon’s report, Brighton contended that Krumwiede had used his extra time with the computer to destroy evidence relevant to Brighton’s counterclaim. Brighton sought terminating sanctions against plaintiff for spoliation of evidence.

Krumwiede countered that he did not intentionally destroy any evidence and that most of the allegedly destroyed evidence still existed on his personal laptop and probably on Brighton’s laptop (with only insignificant alterations in the files’ metadata) as well. He explained that, while his personal laptop was being repaired, he had transferred confidential STI data to the Brighton laptop. He maintained that no evidence was intentionally destroyed and that all the files in question either existed on Brighton’s laptop or on his own personal laptop. However, before his claims could be verified or his personal laptop analyzed, Krumwiede shipped his personal computer to STI for “safe keeping,” and argued that his nondisclosure agreement with STI prevented him from turning over the computer. Krumwiede alleged that he might be fired if he asked for the return of his personal computer from STI, but provided no evidence that this was true. Further, Krumwiede admitted that he had not actually requested its return.

The court conducted an evidentiary hearing, and ultimately concluded that default judgment on the counterclaims against plaintiff was “the only appropriate remedy” for plaintiff’s discovery misconduct. It reasoned:

Krumwiede’s conduct shows such blatant contempt for this Court and a fundamental disregard for the judicial process that his behavior can only be adequately sanctioned with a default judgment. Entering a default judgment against Krumwiede will send a strong message to other litigants, who scheme to abuse the discovery process and lie to the Court, that this behavior will not be tolerated and will be severely sanctioned. Furthermore, any sanction less than default on these counts will not cure the prejudice already suffered by Brighton.

(Citations omitted.) Accordingly, the court entered default judgment on the first four counterclaims and advised that a trial would be held on the issue of damages as to those claims on a date to be set by the court. The court further awarded Brighton its costs and fees relating to its motion for sanctions, including Forensicon’s fees and Brighton’s reasonable attorneys’ fees.

The opinion sets forth the court’s findings of fact and conclusions of law pursuant to FRCP Rule 52(a). Describing the evidence of plaintiff’s discovery misconduct, the court found:

Clear and convincing evidence establishes that Krumwiede acted willfully and in bad faith when he continued to alter, modify, and destroy evidence after August 25, 2005. Beginning on August 25, 2005, Krumwiede had a duty not to alter, destroy, or modify the contents of Brighton’s laptop computer. Despite this duty to preserve evidence, Brighton’s laptop experienced a spike in activity between August 25, 2005 and September 16, 2005, that resulted in the alteration, modification, or destruction of thousands of potentially relevant files and their metadata. Particularly troubling is the tremendous increase in activity immediately following Krumwiede’s receipt of the August 25, 2005 letter (especially from August 25 to August 28, 2005) and the September 15, 2005 order. In fact, it appears that Krumwiede worked late on September 15, 2005, in order to complete as many file transfers, alterations, and modifications as possible before relinquishing control of the laptop computer on September 16, 2005, and that Krumwiede lied to this Court when he testified that he did not receive notice of the September 15, 2005 order until September 16, 2005.

12. While the volume and timing of Krumwiede’s activities are sufficient to find willful and bad faith spoliation of evidence, it is also clear that Krumwiede specifically altered and deleted potentially adverse evidence directly relevant to Brighton’s claims. Of the altered or deleted files in this case, over 200 different files contained the words “LifeScan” or “Inverness.” Without even delving into the merits of Brighton’s claims, these 200 files appear to relate directly to Brighton’s claims for breach of non-compete provision, breach of confidentiality provision, tortious interference with prospective economic advantage, and violation of the Illinois Trade Secrets Act.

13. Krumwiede’s willfulness and bad faith are further evidenced by his continued obstruction of discovery even after relinquishing control of Brighton’s laptop computer. In his December 9, 2005 response to Brighton’s motion for sanctions, Krumwiede denied allegations of intentional spoliation of evidence, claiming instead that he stored confidential STI information on Brighton’s laptop when his own computer was being repaired and then removed those files from Brighton’s laptop before turning it over to Forensicon in order to avoid breaching his Nondisclosure/Confidentiality Agreement with STI. Krumwiede claimed-and continues to claim – that no evidence was intentionally destroyed and that all the files in question either exist on Brighton’s laptop or on his own personal laptop. However, immediately after filing his December 9, 2005 response, and before his claims could be verified or his personal laptop analyzed, Krumwiede shipped his personal computer to STI for safe keeping, again arguing that his Nondisclosure/Confidentiality Agreement with STI prevented him from turning over the computer. To date, Krumwiede refuses to ask STI to return his laptop because he has a feeling STI will fire him if he makes the request.
As noted above, Krumwiede’s Nondisclosure/Confidentiality Agreement with STI does not apply when STI employees are required by law to produce evidence. Furthermore, despite Krumwiede’s hunch, there is no evidence to suggest that STI will fire Krumwiede if he asks for his personal laptop. On the other hand, there is evidence-provided by this Court to Krumwiede – that a default judgment may be entered against Krumwiede if he fails to produce his laptop computer and substantiate his defenses to the spoliation of evidence claims. Nevertheless, Krumwiede refuses to ask for his personal laptop. Based on these facts, the Court finds Krumwiede’s actions with regard to his laptop computer to be an egregious attempt to “hide the ball” and a flagrant discovery violation.

(Citations to the record omitted.)